Tending Social Security

February 20, 1998

President Clinton last week scheduled the first of four regional forums on overhauling the Social Security system. It is set for April 7 in Kansas City. And he will join in a teleconference on the subject March 21 sponsored by the Pew Charitable Trust.

This presidential attention should kick off a more intense national debate on what changes to make in the system to accommodate the baby-boom generation as its numerous members start retiring about 2008.

In his State of the Union message, Mr. Clinton promised to convene in a year the leaders of Congress "to craft historic, bipartisan legislation to achieve ... a Social Security system that is strong in the 21st century."

In the meantime, Clinton said, "every penny" of Federal budget surpluses should go to bolstering the system. "Social Security first," he said.

Putting aside surpluses sounds like a good idea to us. If the money is used to redeem federal debt, it will shrink the 14 percent proportion of federal revenues now going to service the $3.8 trillion national debt. This it would keep down the tax burden in the next decades as the number of retirees drawing on Social Security grows rapidly.

Gene Sperling, director of Clinton's National Economic Council, says the debt-redemption approach would be acceptable for the next year or two while reform is underway.

Clinton's timing seems right too. No great rush on reform is required. If left untouched, the system will pay full benefits for the next 35 years There is no immediate financing crisis. But it would be helpful to those planning for retirement to know the terrain ahead so they can adjust their financial course.

Whatever is done, care must be taken not to make the retirement system risky. It provides benefits to 44 million Americans today. Most working Americans count on Social Security payments as part (or all) of their income in their senior years. It is an assurance they will not be left completely destitute.

The delay of legislation until 1999 gives the public more time to review options. These include trimming benefits, raising taxes, and privatizing a portion of the system. It also takes reform beyond the fall election and hopefully out of partisan politicking. Clinton hasn't specified what reforms he desires, saying he does not want to stir up partisanship.

In testimony to Congress last fall, Federal Reserve Chairman Alan Greenspan made a point we would like to note: Active workers always provide the goods and services needed by retirees, whether they be numerous or not so numerous. So our children and grandchildren will not be able to avoid that burden.

What is relevant is how pensions are financed - by the present government system, by a privatized system that relies on investments in stocks and bonds, or some mix.

The most valid argument for privatization would be if the change increased savings and thus boosted production and productivity over time. But it's not clear that it will.

"The bottom line in all retirement programs is the availability of real resources," says Mr. Greenspan. "The finance of any system is merely to facilitate the allocation of resources that fund retirement consumption of goods and services."

In the debate ahead, crucial points to watch include: Will an altered system be as generous to low-income earners as the present one? Do voters prefer a pension with the amount guaranteed by Uncle Sam, or one with the greater risks of investment in private securities?

One other point: Usual productivity increases mean Americans will be much more prosperous 35 years from now. Taking care of their seniors will be more affordable.